Whole Foods 2008 Annual Report Download - page 74

(14) Share-Based Payments
Share-based payment expense before income taxes recognized during fiscal years 2008, 2007 and 2006 was approximately
$10.5 million, $13.2 million and $9.4 million, respectively. Share-based payment expense was included in the following line
items on the Consolidated Statements of Operations for the periods indicated (in thousands):
2008 2007 2006
Cost of goods sold and occupancy costs $ 233 $ 475 $ 264
Direct store expenses 5,300 7,093 3,555
General and administrative expenses 4,972 5,607 5,613
Share-based payment expense before income taxes 10,505 13,175 9,432
Income tax benefit (4,815) (4,114) (2,724)
Net share-based payment expense $ 5,690 $ 9,061 $ 6,708
Stock Option Plan
We historically granted options to purchase common stock under our 1992 Stock Option Plans, as amended. At our 2007
annual shareholders’ meeting, our shareholders approved the Whole Foods Market 2007 Stock Incentive Plan. The fiscal
year 2008 and 2007 options were granted pursuant to this new plan. Our Company has, in connection with certain of our
business combinations, assumed the stock option plans of the acquired companies. All options outstanding under our
Company’s previous plans and plans assumed in business combinations continue to be governed by the terms and conditions
of those grants. Under these plans, options are granted at an option price equal to the market value of the stock at the grant
date and are generally exercisable ratably over a four-year period beginning one year from grant date. Options granted in
fiscal years 2006 through 2008 expire five years from the date of grant. The market value of the stock is determined as the
closing stock price at the grant date. At September 28, 2008, September 30, 2007, and September 24, 2006 approximately
4.5 million, 5.5 million and 6.5 million shares of our common stock, respectively, were available for future stock option
grants. The following table summarizes option activity (in thousands, except per share amounts and contractual lives in
years):
Weighted
Number Weighted Average Aggregate
of Options Average Remaining Intrinsic
Outstanding Exercise Price Contractual Life Value
Outstanding options at September 25, 2005 22,545 $ 44.58
Options granted 1,444 69.00
Options exercised (5,466) 36.00
Options expired (202) 56.57
Options forfeited (46) 64.52
Outstanding options at September 24, 2006 18,275 $ 48.82
Options granted 1,704 39.77
Options exercised (1,879) 26.30
Options expired (704) 60.64
Options forfeited (185) 58.70
Outstanding options at September 30, 2007 17,211 $ 49.80
Options granted 2,249 27.59
Options exercised (973) 15.73
Options expired (842) 55.64
Options forfeited (215) 43.18
Outstanding options at September 28, 2008 17,430 $ 48.64 3.29 $29
Vested/expected to vest at September 28, 2008 17,027 $ 49.01 3.26 $25
Exercisable options at September 28, 2008 13,437 $ 51.88 3.07 $ 3
The weighted average fair values of options granted during fiscal years 2008, 2007 and 2006 were $6.46, $9.76, and $17.04,
respectively. The aggregate intrinsic value of stock options at exercise, represented in the table above, was approximately
$20.9 million during fiscal year 2008 and $45.3 million during fiscal year 2007. As of the end of fiscal years 2008 and 2007,
there was approximately $29.8 million and $27.5 million of unrecognized share-based payments expense, respectively,
related to nonvested stock options, net of estimated forfeitures, related to approximately 3.6 million and 2.5 million shares,
respectively. We anticipate this expense to be recognized over a weighted average period of approximately three years.
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